Transcript Slide 1

Chapter 4
Management Control, Accounting and
its Rational-Economic Assumptions
© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
1
Overview
•
•
•
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Accounting and management control systems
Cybernetic forms of control
Non-financial performance measurement
Theoretical framework
© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
2
Management control & strategy
• ‘the process by which
managers assure that
resources are obtained
and used effectively and
efficiently in the
accomplishment of the
organization’s
objectives’
Strategy formulation
Management control
Task control
– Anthony
© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
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Management control & behaviour
• ‘the process of guiding
organizations into viable
patterns of activity in a
changing environment …
managers are concerned to
influence the behaviour of
other organizational
participants so that some
overall organizational goals
are achieved’
– Berry et al.
• Market
• Bureaucracy
• Clan
– Ouchi
© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
4
Management control & accounting
• ‘the formal, informationbased routines and
procedures used by
managers to maintain or
alter patterns in
organizational activities ...
potentially significant levers
of organizational change’
– Simons
• ‘accounting is still seen as a
pre-eminent technology by
which to integrate diverse
activities from strategy to
operations and with which
to render accountability’
– Otley et al.
© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
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Elements of a control system
• Control systems - feedback control
– ‘the observed error is fed back into the process to
instigate action to cause its reduction’
• Planning systems - feed forward control
– ‘because it is only an expected error that is used to
stimulate the control process’ (Otley, 1987)
© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
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© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
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Standards against which performance
can be compared
– Previous time periods;
– Similar organizations;
– Estimates of future organizational
performance ex ante (before the event);
– Estimates of what might have been
achieved ex post (after the event);
– The performance necessary to achieve
defined goals.
• Emmanuel et al.
© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
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Cybernetic control
• Four types of control:
• Four conditions:
1. Objective
2. Measuring outputs
3. Predict the effect of
control actions
4. Ability to reduce
deviations
• Berry et al.
– First-order control adjusts
system inputs and causes
behaviour to alter;
– Second-order control alters
system objectives or the
standards to be attained;
– Internal learning amends the
predictive model on the basis
of past experience
– Systemic learning or adaptation
changes the nature of the
system itself
© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
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© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
10
Do these conditions exist?
• ‘organizational objectives are often vague,
ambiguous and change with time ... measures of
achievement are possible only in correspondingly
vague and often subjective terms ... predictive
models of organizational behaviour are partial and
unreliable, and ... different models may be held by
different participants ... the ability to act is highly
constrained for most groups of participants’
– Otley & Berry (1980)
© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
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Accounting and management control
•‘accounting information provides a window through which
the real activities of the organization may be monitored, but it
should be noted also that other windows are used that do not
rely upon accounting information’
– Otley & Berry (1994)
© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
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Non-financial performance measurement
• Tableaux de bord
• Business Excellence Model
– Innes
• Performance Pyramid
– Lynch & Cross
• Results & Determinants
Framework
– European Foundation for
Quality Management
• ISO 9000
 Overwhelming emphasis on
financial measures
– Fitzgerald et al.
• Performance Prism
– Neely et al.
© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
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The Balanced Scorecard (Kaplan & Norton, 1996)
Accounting for Managers, 3rd
ed., Ch 4
14
© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
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Strategy mapping (Kaplan & Norton, 2001)
• A strategy map identifies the assumed cause-effect
relationships.
• Performance targets are developed for each of the
elements in the strategy map, and financial resources
are allocated (through the budget process) to support
the achievement of those targets.
• Regular monitoring and review of performance takes
place through comparing actual performance against
targets.
• Where performance needs to be improved, the
strategy mapping process involves making resource
reallocations through changing budgets.
© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
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Theoretical framework
• ‘Rational paradigm
– Driven by goals & strategy
– Cybernetic control
– Bounded rationality (March &
Simon)
• Organizations are highly
formalised
– Role of accounting & control
in managing a ‘contract’
between shareholders and
managers
 Rules governing behaviour
and roles are determined
independent of the attributes
of the people occupying
those roles
 Division of labour and
specialization of tasks,
reducing transaction costs,
efficiently processing
information and monitoring
the work of agents
© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
16
Key points
• Accounting as part of a management control
system
• Cybernetic forms of control
• Non-financial performance measurement
– the Balanced Scorecard and strategy mapping
• Theoretical framework: the rational paradigm
© 2012 John Wiley & Sons, Ltd,
Accounting for Managers, 4th edition,
9781119979678
17